A new regime of US sanctions has just been signed into law, opening a fresh front in the increasingly polarised political debate in Zimbabwe.
Critics say they hurt the economy, while supporters say the measures are justified due to Zimbabwe’s human rights violations and its failure to deliver an uncontested poll.
In this special report, newZWire pieces together the history of US sanctions on Zimbabwe, the players involved over the years, the impact of the measures, and what Emmerson Mnangagwa plans to do about them.
Did the events of August 1, when soldiers shot dead at least six protesters in Harare, lead to the signing of the amended ZIDERA? Not quite.
On July 25, ahead of the Zimbabwe election, the US Congress and Senate passed the amended Zimbabwe Democracy and Economic Recovery Act (ZIDERA).
Just over a week after the 2018 election, US President Donald Trump signed the amended ZIDERA act into law. While this signing came after the events of August 1, Trump was always going to sign the law.
Before the violence, US Congresswoman Karen Bass, who was part of the American IRI-NDI observer mission, had said Trump was going to sign the new ZIDERA bill, whatever the outcome of the poll or its aftermath. “It went through both houses, so I don’t see any reason why he wouldn’t sign it”, she told a press conference in Harare.
So, the sanctions were inevitable long before the post-election violence, which however only served to bolster the position of those pushing for action against Zimbabwe’s Government.
What are the demands?
ZIDERA was first enacted in 2001, after violent land takeovers and elections in Zimbabwe, as well as the country’s involvement in the DRC war.
The law has now been amended to reflect updated demands for free elections, but broadly still retains its key requirements.
ZIDERA makes several demands, many of which are targeted at democratic and economic reforms.
In summary, the law demanded that the Zimbabwe Electoral Commission be independent (an earlier version of the amended bill demanded that ZEC be replaced by a new commission chosen by all parties in Parliament) that the military play no role in election campaigns, equal access to State media for all participating parties, and that ZEC release both the provisional and the final voters’ rolls ahead of the poll.
ZIDERA also demanded that the Zimbabwe Government apologise for the Gukurahundi atrocities, that Zimbabwe invites international observers for the polls, and that there be economic reforms, key being on the currency and changes at central bank.
A lot of these demands resonate broadly with many in Zimbabwe, who live under the weight of the ruling ZANU-PF party’s economic mismanagement and political repression.
All about Zimbabwe’s land?
While much of the demands under ZIDERA, such as democratic and economic reforms, easily fit with the demands of many ordinary Zimbabweans, at the core of the law is a more controversial issue – land reform.
After meeting President Emmerson Mnangagwa, new US ambassador Brian Nichols mentioned “land tenure” as one of the areas on which the Americans want to change. Land has been at the base of the law since 2001.
A central demand of the updated ZIDERA is that Zimbabwe must enforce the rulings of the SADC tribunal on land reform.
Some background on that ruling is needed. In 2007, a group of white farmers represented by Mike Campbell and Ben Freeth, approached the regional court to appeal against their eviction under the fast-track land reform programme. They went to the region because Zimbabwean courts, after a controversial purge of dissenting judges, had ruled the land reform exercise legal.
The SADC tribunal made several important rulings in favour of the white farmers, which the US senators behind the new amended ZIDERA now want enforced as a precondition for re-engagement with the US.
According to the 2018 amended ZIDERA: “It is the sense of Congress that the Government of Zimbabwe and the Southern African Development Community (SADC) should enforce the SADC tribunal rulings from 2007 to 2010, including 18 disputes involving employment, commercial, and human rights cases surrounding dispossessed Zimbabwean commercial farmers and agricultural companies.”
What are these SADC rulings?
Most crucially, the tribunal ruled that that white farmers be compensated for the land lost.
However, Zimbabwe made sure its Constitution, under Section 295, only allowed compensation to “indigenous Zimbabweans” and those under Bilateral Investment Promotion and Protection Agreements (BIPPAs). White farmers are only “entitled to compensation from the State only for improvements that were on the land when it was acquired”.
Enforcing the SADC tribunal ruling, as demanded by ZIDERA, would mean Zimbabwe paying for the land itself. According to farmers’ unions, they estimate their compensation bill at as high as $30 billion for the land and assets on the land. Instead, the Zimbabwean Government has promised only to compensate for farm improvements, for which farmers have previously tabled a $9 billion bill.
So far, the Government claims to have paid out $200 million in compensation to farmers. Most of this compensation is for farm assets and land that was under BIPPAs. Some 11 million hectares, made up of 3100 farms, has so far been evaluated for compensation.
But compensation is not the only tough-to-enforce SADC tribunal ruling.There are several other far reaching rulings.
The tribunal also ruled that land reform was “arbitrary, racially discriminatory and contrary to the rule of law”. The programme, therefore, violated Zimbabwe’s Constitution. It ordered that all evicted farmers must get back their land and never be interfered with.
In simple terms, the SADC tribunal declared the entire land reform exercise illegal and reversible.
While some commentators say Zimbabwe only needs to comply with the demanded democratic reforms to have US sanctions lifted, they often ignore the tougher set of conditions on land.
It is probable that even if Zimbabwe did implement all the democratic reforms, even under a new Government, sanctions would still remain. This is because the SADC tribunal demand forms a large swathe of ZIDERA’s set of conditions.
Who are the key players on sanctions?
To understand why land is central to both the 2001 and 2018 editions of ZIDERA, one has to step back and take a look at the key players involved on both occasions.
On March 8, 2001, US senators Bill Frist and Russ Feingold introduced the original ZIDERA bill. Among the bill’s sponsors were Hillary Clinton and Joe Biden, who were senators at the time. It was a bipartisan effort, with politicians from across the aisle pushing for the law.
But there are two key figures who have been central to ZIDERA, then and now; Senator Jesse Helms in 2001, and Senator Jeff Flake in 2018. Both are conservatives, with controversial records on race relations.
Helms, one of the longest serving US senators, was the key proponent of ZIDERA in 2001. Given his decades-long history of opposition to ZANU-PF in particular and African nationalism in general, his role was hardly surprising.
At the centre of that original ZIDERA bill, just as in the current version, was the issue of land. Helms had been one of the biggest supporters of Rhodesia and UDI. Ironically, he campaigned for the lifting of sanctions against Ian Smith’s administration.
Back in America, in 1964, Helms had opposed the Civil Rights Act which removed the discrimination of blacks. He called the law “the single most dangerous piece of legislation ever introduced “. He described Martin Luther King and his followers as “Communists and sex perverts”.
In 1979, Bishop Abel Muzorewa won an election that excluded the majority of blacks. Yet, Helms wrote to say “by any objective standard” Rhodesia’s elections were free and fair and sanctions had to go. Muzorewa visited Washington that year on Helms’ invitation to lobby for recognition.
At the time, despite sanctions on Rhodesia, US corporations like Ford, Standard Oil, and General Motors did good business with Rhodesia via South Africa.
Helms died in 2008. One of his protégés in conservative circles, Jeff Flake of Arizona, was there to pick up the mantle.
Together with Chris Coons, Flake is one of the key sponsors of the new ZIDERA amendment.
Just like Helms, he too is a deep conservative. In 1987, Flake testified before the Utah State Senate in support of a resolution in favour of apartheid South Africa. A lobbyist for American mining interests at the time, he said, ironically given current debates on the impact of sanctions, that he opposed sanctions on South Africa because they hurt ordinary South Africans.
Earlier this year, it was reported that Jeff Flake’s teenage son, Tanner, went by the name “n1ggerkiller” in an online game, and posted YouTube comments using the word “nigger”. Flake had to apologise on his son’s behalf, but the episode was a window into Flake’s conservatism.
There have been some unsuccessful attempts in the US to end sanctions. Senator Jim Inhofe (Oklahoma) tried to introduce a Zimbabwe Sanctions Repeal Act in 2010. Russ Feingold, a key ZIDERA proponent, had also earlier joined with senators Johnny Isakson and John Kerry to push through the Zimbabwe Transition to Democracy and Economic Recovery Act, to replace ZIDERA.
A desperate ZANU-PF has over the years also secretly paid a range of shady lobbyists to push for lifting of sanctions. The plans have ended in failure and embarrassment. In 2013, two American businessmen, Ben Israel and Gregory Turner, were charged in a US Federal Court for illegally lobbying American politicians to have sanctions lifted. It was reported that Zimbabwe had promised to pay the pair $3.4 million for the job.
Impact of sanctions?
No study has been done on the real impact of sanctions on Zimbabwe, leaving protagonists on both sides of the divide to either exaggerate their impact or underplay it.
ZANU-PF would have the world believe that all the country’s problems have been caused by sanctions, and not its own economic mismanagement and brazen corruption.
In fact, in 2013, ZANU-PF claimed in its election manifesto that Zimbabwe lost $42 billion due to sanctions. The party provided no basis for that figure.
“…IT MAKES IT HARDER FOR THEM TO ACCESS CAPITAL”
Chris Coons, in June, however did provide an insider’s view into that debate. He told CGTN, the Chinese TV network: “As long as there are significant sanctions by Western sanctions on Zimbabwe, that raises both direct and indirect challenges for them…it makes it harder for them to access capital, to attract the sort of interest and engagement that would revive the Zimbabwean economy.”
Zimbabwe argues that sanctions were responsible for the IMF turning off financial support. However, the truth is that IMF had already withdrawn support in 1999 due to Zimbabwe’s failure to pay back debts. The IMF subsequently withdrew Zimbabwe’s voting rights in 2003.
However, ZIDERA does make it almost impossible for Zimbabwe to access new funding or debt relief from the World Bank, the IMF or any multilateral finance institution where the US has influence, even if it somehow pays off its arrears.
An earlier version of the amended law took a hard line, pledging to punish the AfDB for any debt relief to Zimbabwe. “The United States Government shall withhold funding for the African Development Fund equivalent to any funding provided to Zimbabwe through Pillar II for arrears clearance.”
This amended law is less specific on financial aid by multilateral institutions, pledging “to support efforts to reevaluate plans to restructure, rebuild, reschedule, or eliminate Zimbabwe’s sovereign debt held by that bank and provide an analysis based on reasonable financial options to achieve those goals”.
The net effect is that Zimbabwe’s debt relief plans, especially the Lima plan that has been running for years, are unlikely to succeed as long as ZIDERA remains.
Did the opposition really call for sanctions?
ZANU-PF often makes the claim that it is the opposition that has called for sanctions. The opposition’s stance on sanctions has shifted according to its proximity to power.
In 2012, Tendai Biti, then Finance Minister, told a meeting in Washington that “your foreign policy as a country, as America, could be better towards Zimbabwe. You do not deal with very difficult, fragile states by disengagement, by isolation. It does not work”.
However, in a post-election interview with the Daily Maverick on August 1 this year, Biti declared that “the international community is not going to be fooled by this madness. We will make sure they don’t get a cent.” Asked how he would do this, he added: “I can’t tell you how but I can tell you we have done it before.”
In testimony before the US foreign relations committee in December, Biti did not expressly call for sanctions as his critics often charge. The closest he got was when responding to a question from Flake on whether or not the US should support debt relief for Zimbabwe. Biti’s answer was that debt relief had to be on condition that there were free elections and a smooth power transfer.
In January 2002, the late leader of the MDC, Morgan Tsvangirai, called on South Africa to cut off fuel and close the border to Zimbabwe in order to deal with ZANU-PF’s violent campaigns.
“I think SA will have to go it alone and do something effective on the ground,” he told the BBC. “And South Africa should say, ‘OK, under those circumstances we are going to cut fuel, we are going to cut transport links’.”
However, as Prime Minister under the unity government, Tsvangirai frequently called for the lifting of sanctions on the country. In meetings with Barack Obama, Angela Merkel and other Western leaders, Tsvangirai called for an end to the embargo.
What’s the impact on state firms?
The USA has a two-pronged sanctions regime on Zimbabwe. The first is ZIDERA. The second, which the USA refers to as a “targeted sanctions program”, began on March 7, 2003 when Bush issued Executive Order 13288.
Under this measure, several government officials and companies in which the government had interests were placed on a sanctions list.
One such firm was the Industrial Development Corporation (IDC), a wholly State-owned enterprise, which was under sanctions until 2016. At the time, IDC had interests in a broad range of Zimbabwean companies, such as Olivine, Sable Chemicals, Chemplex and Zimbabwe Fertiliser Company.
In 2013, IDC successfully sought a loan from the PTA Bank for Olivine, but the $2 million was seized by the United States’ Office of Foreign Assets Control (OFAC). The money was to be used for plant rehabilitation and raw materials. IDC has since divested from Olivine.
IDC lost over $20 million to seizures by OFAC. Zimbabwe Fertilizer Company, one of its subsidiaries, had $5 million frozen. This contributed to the firm failing to produce enough fertiliser for farmers. In addition, IDC of South Africa granted IDC an $18 million loan, but turned down a second tranche, afraid of falling foul of the US.
Earlier in 2016, to avoid offending the US treasury, Standard Chartered ordered IDC to close its accounts with the bank. Standard Chartered’s fears were not unfounded. Barclays plc paid a $2.5 million settlement to the US Treasury after processing 159 transactions worth $3.4 million between 2008 and 2013. The transactions were mostly for its client IDC and its subsidiaries.
Some estimates are that state enterprises account for 14 percent of Zimbabwe’s GDP, making them a key part of the economy. At peak, they made up 40 percent of the economy. Typically, state utilities are key to any economy’s growth, and largely depend on foreign loans for their capital expenditure. Such loans have mostly dried up, partly due to OFAC restrictions.
How do these measures hit private firms in Zimbabwe?
At a public meeting with Barack Obama back in 2014, young Zimbabwean techpreneur Takunda Chingonzo made an appeal to the then US president. He had nothing to do with the Zimbabwe Government, he said, but still his small business was affected.
“In our work we got to a point where we needed to import a bit of technology from the United States. And so we were engaging in conversation with these US based businesses, and the response we got time and time again was that unfortunately we cannot do business with you because you are from Zimbabwe. I was shocked. This doesn’t make sense,” Chingonzo said.
Many businesses in Zimbabwe, small and big, can relate.
As long as ZIDERA remains, some of the issues that Zimbabwean businesses have to contend with are high credit costs, and not being considered for business, trade and partnerships with Western firms.
Firstly, it costs more for Zimbabwean businesses to raise capital offshore to run their businesses than it does for countries not under restrictions.
To understand how this happens, we have to look at how sanctions have affected banks such as ZB Financial Holdings and Agribank.
ZB Financial Holdings, in which the Government held 24 percent (NSSA being the biggest shareholder with 38 percent), was under sanctions until 2016. While the bank was on the list, it could not access affordable lines of credit for its clients, most of whom are private enterprises.
With sanctions now off its back, CEO Ron Mutangadayi said: “Having just come out of sanctions, we first had to get our correspondent accounts reestablished. Now that our Euro, US and Rand accounts are operational we can now go out and court investors for new lines of credit we are speaking to regional investors at the moment for a $20 million line of credit which we expect to conclude in the not too distant future.”
For handling ZB Bank transactions while it was under sanctions, CBZ incurred a $385 million penalty from OFAC. The bank sacked its CEO, reportedly over the fine, and is currently trading under a cautionary.
Agribank, the farm lender, is also only now starting to secure foreign credit to fund agriculture. Agribank divisional director for strategy, marketing and business development Joseph Mverecha told New Ziana in 2017 that, now that they were off the sanctions list, “we are now able to deal directly with our clients and conducting transactions without going through third parties”.
“WHEN SANCTIONS HIT THE COUNTRY, EVERY CREDIT LINE DISAPPEARED.”
The cut-off of credit lines was also mentioned by Econet founder Strive Masiyiwa earlier this year at a meeting of Afreximbank clients. “When sanctions hit the country, every credit line disappeared. You could not talk to anyone, they were shutting down…For us as a business, there was one institution that remained and it was Afreximbank.”
To small businesses, getting payments from foreign clients means having to jump through hoops. As an example, until 2013, you couldn’t open a PayPal account from Zimbabwe. When you tried to access the system, you got the message: “Error 3028: You have accessed your account from a sanctioned country”.
While the PayPal barrier has been lowered somehow, the user experience is still not full. Many other payment platforms and services are closed to Zimbabweans.
US companies are reluctant to deal with Zimbabweans, even those who are not connected to any of those on the sanctions list. Many Zimbabwean businesses often find themselves shut out from partnerships with American firms.
Energy entrepreneur Simba Mhuriro has reflected these frustrations on Twitter.
US firms generally stay clear of Zimbabwe, partly because of the fear of OFAC penalties. General Electric Africa, a major US firm, showed interest in investing in Zimbabwe, particularly in the proposed $1.6billion Batoka power project, expected to produce 1600MW. But with the threat of sanctions, they might decide that Zimbabwe, with its own economic problems, may not be worth the risk.
There are other effects too. Zimbabweans often get passed up for opportunities simply because “your country does not qualify”. This happened in 2017 to child rights campaigner Nyaradzayi Gumbonzvanda. She was successfully nominated for a CNN Heroes Programme award for her work, but she was disqualified because Zimbabwe is listed among “voided countries” whose citizens don’t qualify for the CNN award.
Zimbabwe cut off from world banking system
One of the biggest outcomes of US sanctions has been the cordon around Zimbabwe’s financial system. Because many transactions go through the US system, some private funds often get held up or frozen.
This happened to a Zimbabwean couple in the UK in 2011. They had their transfer of $30,000 for a property in Chinhoyi blocked by the US, because the Chinhoyi town council’s bank, ZB Bank, was then on the sanctions list.
These restrictions, however, are broader than just the banks on the list. All banks operate on the basis of relationships with other banks around the world. It’s an arrangement called correspondent banking relationships (CBRs).
According to RBZ data, Zimbabwe has lost at least 102 such relationships over the past decade.
Why are these CBRs important? They make it possible for a company in Zimbabwe, for instance, to pay for goods outside the country. When a Zimbabwean customer uses their card to pay for a service, their local bank uses its relationship with a foreign bank to make the transaction go through. Without that relationship, companies cannot easily import goods, or even be paid for what they export.
A 2016 IMF paper, “the Withdrawal of Correspondent Banking Relationships: A Case for Policy Action”, lays out the impact of losing CBRs.
“The reduction of CBRs is believed to have inhibited further financial integration, raised the cost of finance for small and medium-sized enterprises, and, in some cases, led to firms losing access to credit from US exporters,” the paper says.
The loss of these CBRs is also one of the reasons why the cost of sending remittances is high, according to the IMF. The reason foreign banks cut off Zimbabwe is partly due to the fear of OFAC fines.
Their fears are real, as the CBZ case has shown. Other banks have had worse fines, and are not willing to take any risks with Zimbabwe. In 2014, BNP Paribas was slapped with a massive $8.9 billion fine for handling transactions for clients in Sudan, Iran and Cuba.
When the IMF surveyed banks on sanctions against different countries, many of them said they found the OFAC rules “unclear, inconsistently communicated, unevenly implemented”. So, because of the vague regulations, it’s not worth the risk, “which leads to the banks’ decisions to withdraw CBRs”. Banks, said the IMF, are forced to resort to “overcautious use of enhanced due diligence by banks to shield from potential supervisory or enforcement actions”.
Because of the high risk profile, Zimbabwean companies that borrow have to pay more for the loans they need to do business. At the very least, it means that Zimbabweans have to pay more for goods and services. At most, high credit costs makes it harder for companies to remain in business, let alone expand.
What is Mnangagwa trying to do about it?
Since his inauguration last November, Mnangagwa has been on a diplomatic offensive to end Zimbabwe’s isolation. For the first time in years, Western observers were allowed to observe the poll and foreign media, previously banned, were allowed in.
Mnangagwa’s Foreign Ministry, led by SB Moyo, has worked the diplomatic corridors at home and abroad, to push the narrative that this was a “New Dispensation” that deserves international backing. Zimbabwe is also seeking readmission to the Commonwealth, from which Robert Mugabe withdrew the country in a rage back in 2003.
But a free and credible election was always the bridge that Zimbabwe had to cross to be guaranteed some relief, at least from Europe. This seems tough now after ZEC’s poor handling of the poll, the disputed outcome, and the violent aftermath.
But with America, even that free poll always seemed a bridge too far. The Mnangagwa administration seems to have long resigned to the fact that US sanctions would remain, whatever happened with elections.
Just as Mugabe “looked East” to fill the gap left by European and US sanctions, Mnangagwa believes he can secure alternative sources of investment and capital.
In an interview with Namibian broadcaster NBC in Windhoek during the SADC Summit, Mnangagwa said if Zimbabwe continues to moan about sanctions from the US, then “we would have failed our nation”. His strategy, it appears, is to forge closer ties with BRICS, the region and other blocs.
“America is not the only country in the world. There are so many other countries – Brazil, co-operating with the BRICS, we have China, Russia, and South Africa. We have India. All these countries are co-operating. Why would we cry?” Mnangagwa told NBC.
In March, Mnangagwa hosted Russian foreign Minister Sergey Lavrov in Harare, and they agreed to revive a stalled $3 billion platinum project in Zimbabwe. In April, Sergey Ivanov, CEO of Alrosa, the world’s largest diamond producer by output, met Mnangagwa in Harare. The company reportedly plans an investment into Zimbabwe’s controversial diamond industry.
Mnangagwa attended the BRICS summit in South Africa in July, where he had a side meeting with Russian president Vladimir Putin.
During his visit to China in April, Mnangagwa secured an upgrade of Zimbabwe-China relations, and also managed to rescue some transactions that had virtually collapsed, such as the $1.5 billion Sinohydro deal for Hwange expansion.
Beyond traditional allies such as China, Mnangagwa has been opening up new flanks in the Gulf. Earlier this year, he had a meeting with Mohammed Al-Shaibani of the Investment Corporation of Dubai, the investment arm of the government in Dubai, UAE, with assets worth over $200-billion. It has interests in Emirates Airlines and, more significantly for Mnangagwa, recently announced a billion dollar fund to invest in infrastructure in Africa.
In May, Mnangagwa, with his economic Ministers in tow, travelled to meet the Amir of Qatar, Sheikh Tamim bin Hamad Al Thani, whose Qatar Investment Authority has assets estimated at about $300 billion. A Qatari delegation also recently visited Zimbabwe.
Mnangagwa has also made inroads with Spain and Brazil for farm equipment.
However, his efforts, even if successful, can only lessen the effects of sanctions from a global superpower, but cannot completely offset them. Zimbabwe would still find it almost impossible to secure the balance-of-payments support and debt relief that it needs, and also to transact freely with much of the world. The damaging country risk premium will also remain as long as US sanctions are maintained.
Final word: truth and lies
While US sanctions have had a real impact on Zimbabwe’s economy, ZANU-PF is obviously lying and exaggerating when it blames sanctions for everything that has gone wrong economically. For example, by the time ZIDERA was enacted in 2001, IMF had already cut off Zimbabwe due to default and poor management of credit.
Sanctions are not responsible for corruption, ZANU-PF’s wanton looting of national resources, and its overspending.
Equally, those that completely deny the impact of US sanctions are dishonest. Beyond that, the suggestion that democractic reforms alone will be enough to have the US lift sanctions ignores the history of ZIDERA, the politics of key proponents, and some of ZIDERA’s key demands on land.- https://newzwire.live .
This article was first published in 2018.